Question

Waterways Continuing Problem (This is a contineation of the Waterways Problem froes Chapsers 1 through 8. wCP9 Waterways Corporation is preparing ins badget for the coming yeat 2014. The firt step is to plan for the first quarter of that coming vear Waterways gathered the fol- lowing information from the managers Sales Unit sales for November 2013 Unit sales for December 2013 Espected unit sales fo January 2014 Expected unit sales for February 2014 Expected unit sales Sor March 2014 Expected unit sales for April 2014 Expected unit sales for May 2034 Unit selling price 112.500 102.100 113000 112.500 116.000 125.000 137.500 $12 Waterways likes to keep 10% of the next month's unit sales in ending iventory, All sales are cn accouns 85% of the Accounts Receivable are collected in the month of sale and 15% of the Accouns Recriable are cellected in the month after sale. Accounts receiv able on December 31, 2013, totaled $183,780 Direct Materials Inventory, Dec. 31 5,177.5 Ib 3,883.125 lbs 1.294.375 Ih Item Amount Used per Unit 1b@ 58e per lb 12 or e per oz 4 e Se per o Metal Plastic Rubber 10.355.0 Ibs 2 lbs per unit Metal plastic, and rubber sogether are 75e per pound per unit. Waterways likes to keep 5%e of the materials needed for the next moech in its ending invencory Payment for materias is made within 15 days. 50e is paid in the month of purchase, and 50% is paid in the monah after purchase. Accounts Payable on December 1, 2013, teealed $120.595 Raw Materiahs on December 31. 2013, totaled 11.295 pounds Direct Labor Labor requires 12 minutes per unit for completcn and is paid at a rate of $8 per hour Manufacturing Overhead Indirect materials Indirecs labor Utilities 30 per labor hour 50 per labor hour 45 per labor hour 25e per labor hour $42000 per month S16,800 per month $ 2.675 per month S1,200 per month s 1,300 per month Maintenance Salaries Depreciation Property tases Insurance Janitorial Selling and Admisistrative Variable selling and administrative cost per unit is 51.60 $15,000 a month S 1,400 a month $72,000 a moth $2.500 a month S 3,000 a month Advertising Insurance Salaries Depreciation Other fised costs Other Information The Cash balance on December 31, 2013, totaled $100.500, but management has decided it would like to maintain a cash halance of at kast $800,000 beginning on January 31, 2014. Dividends are paid each month at the rate of $2.50 per share for 5,000 shares outstanding. The company has an open line of credit with Romney's Bank. The terms of the agreemens requires boowing to be in $1,000 increments at 8% interest. Waterwavs borrows on the first day of the month and repays on the last day of the month. A 5500.000 equipment purchase is planned for February Instructions For the first quarter of 2014, do the following. (a) Prepare a sales budget. tb) Prepare a production budget. (c) Prepare a direct materials budget. (Round to nearest dollar) (d) Prepare a direct labor budget. (For calculations, round to the nearest hour) te) Prepare a manufacturing overhead budget. (Round amounts to the nearest dollar) D Prepare a selling and administrative budget. (g) Prepare a schedule for expected cash collections from customers (h) Prepare a schedule for expected payments for materials purchases. (Round totals to nearest dollar Prepare a cash budget.

Answer 1

WATERWAYS CORPORATION

SALES BUDGET

FOR THE FIRST QUARTER OF 2014

Particulars	Jan	Feb	March	Quarter
Sales in Units	113,000	112,500	116,000	341,500
Sales in Dollars ($) Unit Price = $12	1,356,000	1,350,000	1,392,000	4,098,000
Formula= Sales unit * Unit price	113,000*12	112,500*12	116,000*12	341,500*12

Explanation:

Expected Sales in Unit for the months of Jan to may is given in the question. We are preparing Sales budget for the first quarter which is Jan to March. Unit Price is given as $12. When you multiply Unit price into No. of units sold in the each month you will get the Sales in Dollars. Total of 3 months Sales will give you Sales for the Quarter.

WATERWAYS CORPORATION

PRODUCTION BUDGET

FOR THE FIRST QUARTER OF 2014

Particulars	Jan	Feb	March	Quarter
Estimated Sales in Units	113,000	112,500	116,000	341,500
(+) Planned Ending Inventory	11,250	11,600	12,500	12,500
Total no. of units Required	124,250	124,100	128,500	376,850
(-) Opening Inventory	11,300	11,250	11,600	11,300
Units to be Produced	112,950	112,850	116,900	342,700

Explanation:

In production budget we need to calculate the no. of units to be produced in the particular period.  

No. of Units to be produced = Estimated sales + Closing Inventory - Opening Inventory.

We have Estimated units of sales in the question for Jan to March. Total all 3 months for Estimated units of sales of quarter. Ending Inventory is given as 10% of sales of Next month. So for Jan closing Inventory we have taken 10% of sales of Feb and for Feb closing Inventory we have taken 10% of sales of March and for March closing Inventory we have taken 10% of sales of April and Closing inventory for the quarter is nothing but the inventory at the end of the quarter which is closing inventory of March.

Total of First 2 rows will give you the total no. of units required for the month and total of 3 months will give you the required units for the quarter.

We know that the Closing stock of one month is the opening stock of next month and here closing stock is 10% of next month sales. To Find Opening stock of Jan we need to know the closing stock of Dec which is nothing but 10% of sales of Jan. Likewise we have already calculated the closing stock of Jan and Feb which are the opening stock For Feb and March.

opening inventory for the quarter is nothing but the inventory at the beginning of the quarter which is opening inventory of Jan.

Now we need to reduce the opening stock of each month from Required no. of units of each month to get the No. of units Produced and total of 3 months will give you the no. of units to be produced for the quarter.